UK election results: good for shale gas, bad for onshore wind

One of the most uncertain UK general elections of recent decades is reaching a surprisingly definite conclusion: indications on the morning of May 8th suggest a majority for the Conservative party, the lead partner in the coalition government that ran the country over the last five years. The energy industry may be pleased most of all by the removal of uncertainty, while future policy measures could boost shale gas, but limit the growth of onshore wind.

Shares in major UK utility groups were up May 8 morning as it emerged that the Conservative party looked set to gain a majority in parliament, with the BBC forecasting 329 parliamentary seats for the Tories, creeping just over the 326 needed to lead the House of Commons.

Centrica, the country’s biggest domestic gas and power supplier, was one of the fastest rising companies on the London Stock Exchange Friday, up 6% on the day just before 10am UK time. The other UK-headquartered major utility, SSE, was up 4%.

The biggest issue facing the utility groups this year remains the Competition & Markets Authority’s ongoing investigation into the energy sector, due to report back by Christmas. The independent watchdog could still propose major reform of the industry, including the sort of structural changes to companies – splitting up production and retail divisions – that were proposed by the opposition Labour party.

But the fact that the election has had a clear result will help the industry to settle down and start planning investments again, without having to worry about the potential for weeks of coalition-building, or even a second election later this year, which had been an increasingly discussed possibility.

Longer-term there remain some important questions over the regulatory framework for major energy businesses, however.

The Liberal Democrats, the junior partner in the 2010-2015 coalition, are facing huge losses, including the seats of senior party figures such as energy minister Ed Davey.

But the Scottish National Party has made landslide gains in Scotland, re-opening the issue of Scottish independence that was meant to have been settled by the referendum in September 2014. The ownership of North Sea oil and gas reserves could now be up-for-debate once more.

European Gas Daily is a flagship Platts publication that delivers crucial competitive intelligence across the entire European gas marketplace. It keeps you ahead of critical price changes and their effects on the industry — to help you make informed market decisions.

Meanwhile the Conservative victory means that Prime Minister David Cameron will now push ahead with legislation on a referendum on the UK’s membership of the European Union. Any UK withdrawal from Europe could be a major upheaval for the major power and gas companies used to trading in a market highly connected both through physical pipes and cables and through growing Brussels-based legislation.

Regarding energy policy the Conservative victory offers the prospect of general continuity, removing the threat of price-caps on power and gas tariffs proposed by Labour, and suggesting a lighter-touch, more markets-based regulatory approach.

The Conservatives have committed to support for new onshore shale gas exploration, as well as the older North Sea oil and gas industry. The party’s manifesto says that it “will continue to support the safe development of shale gas” and “continue to support development of North Sea oil and gas.”

The actual wording here is fairly bland, but senior party figures including the finance minister George Osborne are understood to be keen to see the shale industry grow, and the party may become more vocal about its support now the election is out of the way.

Various companies, including Cuadrilla Resources, are poised to begin fracking tests again this year once final planning permissions are secured, some four years after initial fracking tests in early 2011 that triggered earthquake concerns.

Labour was not set against shale gas exploration, but took a lead in tightening environmental monitoring duties upon the industry during debate on energy legislation earlier this year, resulting in amendments to the government’s infrastructure act.

But renewables companies will be disappointed by the new government’s proposed stance on onshore wind, one of the cheapest forms of green energy now available.

The Conservative manifesto is not supportive: “Onshore windfarms often fail to win public support … and are unable by themselves to provide the firm capacity that a stable energy system requires.” The party says that it will end any new public subsidy for them, and also plans to change the law to give local people “the final say” on any further windfarm applications.

Even one-longstanding Conservative politician questioned this approach. Tim Yeo, the former chair of parliament’s energy scrutiny committee, warned in a final speech before standing down from parliament that ruling out onshore wind, while remaining committed to European green energy targets, could result in higher bills for consumers.

“Britain needs secure clean energy, but we should choose the most affordable and cost effective technologies, which include onshore wind,” he argued.

UK energy companies have much to consider for the weeks and months ahead, but with the country now having fixed five-year parliaments, election-planning at least is off the agenda until 2020.